McKinsey & Company, the global consulting giant, is scaling back its business in China, reducing its workforce by approximately 500 employees—nearly a third of its total workforce in the region.
The move is part of a larger strategy to separate McKinsey’s China operations from its global business due to heightened security risks and growing scrutiny from U.S. lawmakers over its work in the country.
Reducing Exposure to China-Linked Projects
In recent years, McKinsey has faced intense criticism in Washington for advising both the U.S. government and Chinese entities, raising concerns about potential conflicts of interest.
Amid this pressure, McKinsey has stopped working with local Chinese government clients and scaled back projects linked to state-owned enterprises (SOEs).
Historically, SOEs have represented a large portion of the consulting firm’s clientele in China.
Joe Ngai, head of McKinsey’s China business, noted that while employee attrition rates have held steady at around 20 percent, the company has significantly slowed its hiring in the region.
“Our clients face challenges, and we must help them address these challenges in a difficult and slow-growth market,” Ngai said in a recent interview.
He highlighted that despite the reduced footprint, McKinsey still maintains over 1,000 employees across Greater China, which includes mainland China, Hong Kong, and Taiwan.
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Shift in Strategy to Navigate China’s Changing Market
McKinsey’s pivot away from China-linked projects reflects a broader trend among Western firms to reassess their presence in the Chinese market amid growing tensions and China’s economic slowdown.
The consulting firm has redirected its focus to assisting multinational corporations operating in China and Chinese companies looking to expand abroad.
McKinsey’s strategy also involves advising Chinese companies on executive transitions and helping them navigate market challenges.
As part of the restructuring, McKinsey is isolating its China operations from its global networks.
The company is implementing firewalls that limit the access of mainland-based employees to certain internal databases, a step that aligns with efforts by other multinationals to address China’s increased data security and national security regulations.
This trend, known as “siloing,” allows companies to operate within China’s regulatory landscape while safeguarding the rest of their global business.
Declining Revenue and Growing Competition
McKinsey’s China business has been facing competitive pressures from domestic consulting firms that offer similar services at a lower cost.
Local consulting companies like Allpku Management Consulting and China Stone Management Consulting are gaining traction among Chinese clients, many of whom have traditionally relied on U.S. and European consulting firms.
In 2022, foreign consulting firms’ revenues in China fell by 6.3 percent, while domestic consultants increased their revenue slightly, according to data from Shensixing, a Chinese consulting market research firm.
The challenges are compounded by China’s crackdown on foreign consultancy firms.
For instance, police raided the Shanghai office of Bain & Company, and Capvision—a consulting firm that connects investors with industry experts—faced similar scrutiny.
This intensifies the operational difficulties for foreign consulting firms like McKinsey, which must tread carefully in an environment where state-linked projects and other sensitive sectors, such as semiconductors, are closely monitored.
McKinsey’s Focus on International Expansion Projects for Chinese Clients
As part of its revised strategy, McKinsey is placing a greater emphasis on projects aimed at helping Chinese companies expand overseas.
The firm is particularly focused on the electric vehicle (EV) sector, where it assists Chinese automakers with market entry strategies in Southeast Asia and other regions.
This shift reflects McKinsey’s attempt to leverage its expertise in international markets while reducing direct involvement in projects tied to the Chinese government or state-owned enterprises.
The company has also adjusted its hiring practices, incorporating questions about geopolitical risks associated with doing business in China.
This approach allows McKinsey to ensure that new hires are well-versed in the challenges of operating in China under current global conditions.
For instance, candidates in the Asia-Pacific region now face case studies on Chinese companies pursuing overseas expansion, testing their understanding of the complexities involved.
Challenges and Future Outlook
McKinsey’s restructuring in China marks a new phase for the firm, which first entered the mainland market in 1993 and grew alongside China’s rapidly expanding economy.
However, with a tightening regulatory environment, increased competition from domestic firms, and mounting pressure from U.S. lawmakers, McKinsey is navigating a landscape that is more challenging than ever.
In response to these challenges, McKinsey is taking steps to mitigate risks while maintaining a presence in one of the world’s largest economies.
The company’s restructuring could serve as a model for other multinationals facing similar geopolitical pressures and may ultimately influence how foreign firms operate in China going forward.
As McKinsey looks to the future, its focus will likely remain on helping clients navigate the complexities of the Chinese market while safeguarding its global interests.
The changes reflect a strategic pivot aimed at sustaining business operations in China, albeit under a more cautious and segmented framework.
